CFA Level I · CFA Level I Exam · Natural Resources
A fund invests USD 10.0 million in a commodity futures position fully collateralized with Treasury bills. Over one year the collateral earns 2.0%, the spot price rises 5.0%, and the roll yield is negative 3.0%. Ignoring fees, the total return is closest to:
The total return is about 4.0%. A collateralized futures return is the sum of spot return of 5.0%, roll yield of negative 3.0% and collateral return of 2.0%. Adding the roll yield rather than subtracting it would wrongly give 10.0%.
- A2.0%
- B4.0%Correct
- C10.0%
Explanation
Total return = spot return + roll yield + collateral return = 5.0% - 3.0% + 2.0% = 4.0%. Ignoring the roll yield gives 7.0%. Using only the 5% spot change and adding the 3% roll yield instead of subtracting it gives 10.0%.
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